401k IRA Rollovers

Why roll over your employer sponsored plans?

In regards to your 401k and other employer related retirement/investment vehicles, I would like to take the time to shed a little light on the subject. Most of my clients prefer to roll their accounts over from employer sponsored plans for various reasons. I thought that I’d highlight just a few for you:

1) The Catholic Faith. I obviously don’t need to go into great detail here, as I’ve covered the Catholic screening process and our USCCB investment guidelines on the “Prosperitas Wealth Management” website, www.investprosperitas.com. Catholic investing has grown an amazing amount in the past 10 years, and I’m very excited to be a part of it!I enjoy seeing many of our Catholic screened funds beat the performance of many of the “secular” funds, and feel quite blessed that our Lord has created this path for my journey in life.

2) Performance. After rolling an account over from an employer sponsored plan, you are able to better control how you would like to diversify and allocate your assets.In an average 401k, the administrator limits you to where your money can be invested. This can lead to “over-lap”, poor diversification, and the probability that excess risk is taken in a large portion of the portfolio without the full “return” aspect. In the big picture and long run, a well managed and balanced account certainly outperforms accounts with little to no professional asset management.

3) Control. Compared to employer sponsored plans, my clients have more control over their accounts when rolled over. This becomes very important down the road when we will need to supplement income with the interest and dividends from portfolio returns. At age 70 1/2, we will in most cases need to take RMD’s (required minimum distributions).

4) Ability to help grow and fund our local parishes and schools. Through the affiliation with the Catholic Order of Foresters, we open up this unique opportunity to help raise money for our Catholic youth programs, pro-life efforts, special need funds, Catholic scholarships, and for those less fortunate.

To get started, I’d like to be able to review your most recent quarterly statement from your investment/retirement account. By reviewing this, we will be able to analyze your performance, and see where your portfolio is currently allocated. I find that over time investment objectives, beneficiary information, and many other details change which can be addressed in a semi-annual or annual portfolio review.

The following is general information which may be beneficial to you in forming your decision as to what to do with your retirement assets. Retirement plan assets may represent a large portion of your retirement savings. It is important to give careful consideration to what distribution option is best for you. Generally, there are four options available: 1) Retain the assets in the former employer’s plan; 2) Roll the assets to a Traditional IRA or Roth IRA; 3) Roll the assets to the plan of a new employer; or 4) Receive a direct cash distribution.

If the former employer’s plan was subject to the Employee Retirement Security Act (ERISA), the assets are protected from claims of creditors. However, if the assets are rolled out of the plan to an IRA, assets are only protected as an exempt asset in Bankruptcy up to one million dollars.

You may receive a direct distribution from your employer that is exempt from the Federal 10% early distribution penalty if you retire at age 55 or greater. However, if you rollover your assets to an IRA, distributions prior to age 59 1/2 are subject to the Federal 10% early distribution penalty.

All qualified assets must begin distributions at a stated age, generally 70 1/2. If you are a participant in an employer plan and are not a 5% or more owner and continue working beyond age 70 1/2, distribution may be postponed until you actually retire. If your assets are rolled over to an IRA, distribution must begin no later than April 1 following attainment of age 70 1/2 and each year thereafter.

If the employer’s plan is funded with employer stock, you may be eligible for special tax treatment under the tax code. This special tax treatment is lost if you roll your assets into an IRA which taxes distribution as ordinary income.